Down 30% in 2022, is the Altium share price now a buy?

We check whether the ASX tech share could be a good opportunity.

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Key points

  • The Altium share price has suffered in 2022 to date
  • Inflation and interest rates are getting plenty of market attention
  • Citi is currently ‘neutral’ on the business

The Altium Limited (ASX: ALU) share price has shed 30% of its value since the beginning of 2022.

Could the ASX tech share be an opportunity after its heavy decline? Or is it still too expensive?

What’s happening to the Altium share price?

The company has been headed lower as the sell-off among ASX growth shares has intensified.

There is much investor attention on inflation and how high interest rates are set to rise.

But why would interest rates have such an impact on asset valuations? Warren Buffett once described it effectively at a previous Berkshire Hathaway annual general meeting:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature … its intrinsic valuation is 100% sensitive to interest rates.

Central banks around the world are considering ramping interest rates higher to try to tame rampant inflation.

In that environment, Altium announced its FY22 half-year result, its biggest announcement for the year so far.

Earnings wrap

In the six months to 31 December 2021, Altium reported revenue rose by 28% to US$102 million. It revealed 105% Octopart revenue growth to US$22 million, thanks partly to tailwinds from the global electronic parts shortage.

It’s increasing its annual recurring revenue (ARR). For the half, ARR grew by 43%. Recurring revenue is now 74% of total revenue compared to 65% in the same period last year

Altium 365 is seen as a key part of the company’s future – it’s the company’s online platform offering. When the company reported, it said that it had 19,700 monthly active users (up 54% since August 2021).

The underlying earnings before interest, tax, depreciation and amortisation (EBITDA) margin improved from 30.6% to 34.1%.

Altium upgraded its revenue guidance for FY22 to the high end of the range. Its revenue for FY22 is expected to be between US$213 million to US$217 million – representing growth of between 18% to 20%. ARR growth is expected to be between 23% to 27%.

Industry goals

The company has a number of high-profile customers including Tesla, Mercedes Benz, Google/Alphabet, SpaceX, NASA, Boeing, Lockheed Martin, Amazon, Disney, Apple, Microsoft, and many more.

Altium says that it’s “well positioned to disrupt the way electronic products are designed and manufactured”. The electronic PCB software business also said that electronics are at the heart of all intelligent systems.

Over the long-term, Altium wants to reach 100,000 subscribers and US$500 million of revenue.

Is the Altium share price a buy?

Citi currently rates the business as ‘neutral’ but it sees upside with the Altium share price with a target price of $34. It’s optimistic about the Octopart segment of Altium.

The broker thinks the current Altium share price is valued at 51 times FY23’s estimated earnings.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has positions in Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Altium, Amazon, Apple, Microsoft, Tesla, and Walt Disney. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Alphabet (C shares) and Lockheed Martin and has recommended the following options: long January 2024 $145 calls on Walt Disney, long March 2023 $120 calls on Apple, short January 2024 $155 calls on Walt Disney, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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